Ontario Civil

Bankruptcy and Insolvency

Property of bankrupt

Family law issues

Bankrupt not liable to former spouse as evidence not establishing fraudulent misrepresentation

Bankrupt and former spouse (former spouse) bought home together in 2006. Same year, bankrupt’s interest in home was deemed impressed with trust for unremitted source deductions. Parties separated in late 2006. Between December 2008 and February 2009, bankrupt received 2008 Assessment indicating he owed CRA over $70,000 and gave it to lawyer, expecting it to be disclosed to former spouse in matrimonial proceedings. Proceedings were settled with February 2009 consent order requiring bankrupt to transfer interest in home to former spouse, which he did. Before transfer was registered, CRA certified bankrupt’s tax debt and registered $30,562.73 lien against his half interest in home. Bankrupt made assignment into bankruptcy and was discharged. In 2011, former spouse brought claim against bankrupt for $80,562 in general damages and $50,000 in punitive damages, alleging reliance on bankrupt’s non-disclosure of tax debt in December 2008 financial statement. Trial judge held that bankrupt committed civil fraud and materially misrepresented, concealed or failed to disclosure important facts he knew or ought to have known would likely affect how former spouse negotiated consent, or did so with willful disregard for consequences of doing so, and that former spouse would not have made consent had she known of tax debt. Bankrupt appealed. Appeal allowed; action dismissed; lower judgments set aside. It was not open to trial judge to find that bankrupt made representation that he had no liability to CRA and, so, no basis for finding he made false representation. As such, there was no evidence bankrupt knew former spouse intended to rely on any representation or that bankrupt intended that former spouse rely on absence of debts and liabilities in financial statements as representation he had no liability to CRA. There was no evidence either party knew CRA could register lien against bankrupt’s interest in home. There was no evidence bankrupt deliberately tried to mislead former spouse about true state of affairs, from which trial judge could infer fraudulent intent, or that former spouse relied on lack of reference to bankrupt’s debts and liabilities to CRA in financial statements when consenting in February 2009. Trial judge erred in law in failing to analyze evidence as it related to test for fraudulent misrepresentation, approaching case on basis of fraudulent non-disclosure. Application of correct test would have led to conclusion that former spouse failed to prove on balance of probabilities all four of elements of tort of fraudulent misrepresentation and that claim did not survive bankruptcy and had to be dismissed.

Moore v. Morris (2017), 2017 CarswellOnt 5551, 2017 ONSC 1980, Kiteley J., Swinton J., and M.L.J. Edwards J. (Ont. Div. Ct.).

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